Five years ago this week, the first universally deployable blockchain went live on a mainnet. Ethereum paved the way for an entirely new use case for blockchain technology, breaking away from the original vision of Bitcoin as electronic money.
Here are five charts to help you understand Ethereum's evolution.
Part 1: A bloodless secessionNot even a
year after Ethereum launched, a landmark event split the community in two
.The disagreements between the two sub-communities were so heated that the dispute led to the creation of a new cryptocurrency called "Ethereum Classic," which was cloned from the original Ethereum codebase.
Ethereum classic was launched on July 20, 2016, after $60 million worth of Ether (ETH), Ethereum's original cryptocurrency, was stolen by users of an app known as The DAO. At the time, The DAO was the only app of its kind that allowed users to pool funds and vote on which projects to invest the money in. The DAO's vision (before it was hacked and much of its finances were lost) was to be an investor-led venture capital fund.
After weeks of deliberation, Ethereum developers agreed to turn back the clock, reverse the transactions from the DAO hack, and restore users' lost ETH. The changes could only be implemented through a network-wide upgrade, also known as a hard fork. Those who opposed the change argued for maintaining the integrity of the original blockchain with its transactions and balances - including the hacked funds.
On July 20, 2016, when the upgrade was made to restore user funds, the Ethereum blockchain split in two. The part of the community that kept the original log of transactions and funds from the DAO hack and did not upgrade the software created a parallel network, Ethereum Classic.
Since the fork, the Ethereum network has forked seven more times, though none of these subsequent upgrades have reached the same level of controversy as "The DAO Fork" of 2016.
Part 2: Those Darned CatsThe first
dapp on Ethereum to gain real user traction was a collection game called CryptoKitties. Launched in November 2017, the "digital cats" became so popular that news outlets around the world covered them, including the Financial Post, BBC, and New York Times.
At the height of their popularity, tokenized cats on Ethereum were trading for over $200,000. However, the influx of users and high transaction volume of this one viral dapp clogged the Ethereum blockchain to an unprecedented degree. By December 2017, a backlog of 30,000 transactions had piled up, meaning users had to wait days for their ETH transfers to be confirmed.
The developers behind CryptoKitties rushed to stem the tide of new users by increasing game fees. Shortly after the launch of CryptoKitties, Ethereum recorded the highest amount of daily transaction fees in its history on January 10, 2018. On that day, over $4.5 million in fees were collected from Ethereum miners. In the same month, CryptoKitties reached 250,000 registered users.
In many ways, the CryptoKitties craze was the rude awakening that reminded Ethereum developers of the platform's technical limitations. How could Ethereum become the world's computer when a single viral app was enough to overwhelm it? If developers were serious about getting not just thousands, but millions of Dapp users on board, they needed to come up with a concrete plan to increase throughput.
Part 3: Testing the LimitsTheNeed
forEthereum 2.0 and the expected benefits for network efficiency and scalability have only grown stronger since the CryptoKitties craze of 2017. The popularity of Initial Coin Offerings (ICOs) - a way to crowdfund early stages of a cryptocurrency project - peaked in 2018 in terms of dollar amounts raised. This year, a total of $7.8 billion was raised for over 1,000 projects. According to ICObench, over 80% of all ICOs rely on the Ethereum blockchain to create their tokens and issue them to investors.
Trends like the 2018 ICO boom show that blockchain technology can be used for more than just peer-to-peer electronic money. Ethereum, the world's first general-purpose blockchain platform, has become the central hub where dapp developers gather to develop all kinds of use cases for the blockchain, be they gaming or finance-related.
As a result, app developer activity on Ethereum continues to flourish despite the platform's technical limitations. The latest trend dominating user traffic and transaction volume on Ethereum is decentralized finance (DeFi). The DeFi movement currently sweeping Ethereum consists of Dapps modeled after traditional financial players such as credit institutions, exchanges, and derivatives markets. As of July 29, 2020, $3.68 billion worth of crypto assets are locked by users in various DeFi protocols.
Part 4:
Dapp DominanceEthereum's vision from the beginning was to be "the world's computer" on which decentralized applications (Dapps) and assets of all kinds could be freely created and deployed
.To that end, Ethereum developers pioneered a new technology in the emerging field of blockchain, "smart contracts." A new programming language called Solidity was developed to facilitate the programming of Dapps on Ethereum. Common frameworks - such as the ERC-20 and ERC-721 token standards - have been developed to ensure interoperability between different Dapps on the network.
These innovations have paved the way for other general-purpose blockchain platforms that have emerged since Ethereum's birth in 2015. EOS, Stellar, Tezos, and Tron are four cryptocurrencies in the top 15 by market share that also enable the creation and deployment of Dapps. Despite the growing number of alternative Dapp platforms, Ethereum remains the most popular general-purpose blockchain, both in terms of number of users and Dapps, as the chart above shows.
However, Ethereum has yet to fulfill its vision. Its developers believe that the current blockchain infrastructure is woefully inadequate to handle an influx of millions, if not billions, of users around the world. This has always been the assumption of Ethereum's early founders, including Vitalik Buterin. Five years after releasing their creation into the wild, Buterin and others have laid out a roadmap called "Eth 2.0" to complete Ethereum's development. It is expected that the first step of Eth 2.0 will be launched sometime this year or early next year.
Part 5: The long road to 2.0Ethereumhas
yet to fulfill its vision.
Its developers are convinced that the current blockchain infrastructure is woefully inadequate to handle an influx of millions, if not billions, of users around the world. This has always been the assumption of early Ethereum founders like Vitalik Buterin. Five years after the release of their creation, Buterin and others have laid out a roadmap called "Ethereum 2.0" to complete the development of Ethereum, and it is expected to launch sometime this year or early next year.
The roadmap for Ethereum 2.0 is almost as ambitious as the original roadmap that launched the first Dapps. While the launch of this technology is imminent, to understand the five-year history of Ethereum, it is important to study the many iterations Ethereum 2.0 has gone through during the years of planning.
Originally, Ethereum 2.0 was considered the final development phase of the project in 2015 and was referred to as "Serenity." Serenity was scheduled to launch 16 months after the original mainnet launch (which would have been in November 2016). The upgrade would switch Ethereum from a computationally intensive block production process adopted from Bitcoin and known as "mining" to a more energy-efficient validation process.
To that end, developers have created what they call the "difficulty bomb" to slowly but surely encourage the transition from mining. The bomb, which was activated on March 14, 2016, increases the difficulty for miners to find an Ethereum block over time. The timeline for this bomb to slow block production has been delayed three times over the last five years as developers revised plans for the launch of Ethereum 2.0.
The last delay of the difficulty bomb took place on January 2, 2020. This could be the last time the difficulty bomb is postponed, as preliminary estimates from some developers suggest that the transition to Ethereum 2.0 could officially begin sometime this year and replace the existing network by the end of next year.
While it's impossible to say what new technologies and blockchain practice standards will be introduced as a result of Ethereum 2.0, a look at the first five years of the network's development provides some clues. In that time, Ethereum has undergone network-disrupting upgrades, overcome crippling technological bottlenecks, developed new forms of fundraising for crypto projects, and established a plan for migration to Ethereum 2.0.